Because of a monumental error committed by its purchasing department, Corner Grocery ordered 5,000 heads of lettuce rather than the 1,000 that should have been ordered. The company paid $0.65 per head for the lettuce. Although management is confident that it can sell 2,000 units through regular sales, the market is not large enough to absorb the other 3,000 heads. Management has identified two ways to dispose of the excess heads of lettuce. First, a wholesaler has offered to purchase them for $0.25 each. Second, a restaurant chain has offered to purchase the lettuce if Corner Grocery will agree to convert it into packaged lettuce for salads. This option would require Corner Grocery to incur $2,500 for conversion, and the heads of lettuce could then be sold for the equivalent of $1.05 each.

a. Which costs are sunk in this decision?

b. Actually, Corner Grocery can consider three alternatives in this decision. Describe the alternative that is not mentioned in the problem.

c. What are the relevant costs of each decision alternative, and what should the company do?